Back in 2006, housing prices were growing at 10% per year in Central Florida, and I had plowed any IRA funds I had into the real estate. I then found a brand new home development outside Orlando, offering a home that what I felt was at a 10-15% market discount, and using my savings and a mortgage, purchased the $300,000 rental. Even though I had a $500 per month negative on cash flow, I figured that capital appreciation and future rental income would certainly close the financial gap soon.
Six months later, the development sold out, and I was offered $350,000 – a tidy profit of $50,000. The interesting thing is I didn’t sell, not because I was greedy, but because I didn’t want to pay short-term capital gains on the property (which means ordinary income tax rates). I only needed 12 months to go by to pay the much lower (then 15%) long term capital tax.
Unfortunately, that last six months wait cost me over $100,000 in negative cash flows and lost profits, as the market in 2007 crashed to levels that we have never experienced before, cutting values in half. I finally was able to sell the house eight years later and recover close to the original purchase price.
I can’t help but think of what would have happened if I had sufficient funds in my self-directed IRA to purchase the home. I would not have waited for the twelve months to sell, because, if my IRA had paid cash, there would be no taxes at all on the sale. I would have simply taken the proceeds directly into my IRA account. The benefits of being able to move funds from property to property and to completely different classes of investments is one of the unique powers you have with a NuView Trust account.
We have a very interesting time ahead during this election season and beyond. Although it seems like yesterday, the lessons of 2007 and one of the slowest and longest recoveries in our nation’s history may make all of us a bit more cautious. As always surround yourself with good advisors, and continue to educate yourself on the unique choices you have. Check out our newest webinars online to help stimulate your thinking at NuView Trust.
I wish you all the best in your investments,
Glen Mather, CEO